Fannie Mae and Freddie Mac mortgage-backed securities remained the preferred investment choice of the Federal Home Loan Banks during the fourth quarter of 2011, with a minor decline posted from the previous quarter, according to a new analysis by Inside The GSEs based on data from the Federal Housing Finance Agency. Ginnie Mae securities likewise posted a decline within the 12 FHLBank system during the three-month period ending Dec. 31, 2011. GSE MBS accounted for 69.6 percent of combined FHLBank MBS portfolios, down 2.1 percent from the third quarter of 2011. The Finance Agency’s data do not separately break out Fannie and Freddie volume or share.

President Obama this week signed into law a measure that, among other things, kills big bonus payments to Fannie Mae and Freddie Mac executives for as long as the GSEs are subsidized by taxpayers. After nearly two months and some legislative positioning, Congress passed the Stop Trading on Congressional Knowledge Act of 2012. Primarily, the STOCK Act bars House and Senate members and their staff from using non-public, inside information for personal benefit.However, an amendment to the bill which was passed on an overwhelmingly bipartisan margin in both houses of Congress prohibits the payment of bonuses over and above a GSE executive’s salary compensation while Fannie and Freddie remain in government conservatorship.

The inherent tensions between the Federal Housing Finance Agency’s dual role as both conservator and regulator of Fannie Mae and Freddie Mac pose “significant challenges” that may put the Finance Agency at cross purposes with its two missions, according to the FHFA’s official watchdog. A white paper issued by the FHFA’s Office of Inspector General last week offering its current assessment of the agency’s conservatorship of the GSEs cited the Finance Agency’s two main challenges as: attempting to advance the enterprises’ business interests while assisting distressed homeowners; and simultaneously serving as both conservator and regulator.

Senate Democrats would like to see the Federal Housing Finance Agency loosen even further the refinancing restrictions on GSE mortgages and they’ve got a couple of pointers on how to make it so. Last week, Democrats on the Senate Banking, Housing and Urban Affairs Committee, led by Chairman Tim Johnson, SD, wrote FHFA Acting Director Edward DeMarco to encourage the Finance Agency to take the Home Affordable Refinance Program beyond HARP 2.0.

Three former Fannie Mae executives, including the company’s one-time CEO, have petitioned a federal judge to toss the securities fraud case the government filed against them late last year. Filed last week in the U.S. District Court for the Southern District of New York, the motion to dismiss contends the Securities and Exchange Commission is thin on proof that the GSE, at the direction of the then top executives, failed to disclose to investors the companies’ exposure to subprime mortgages prior to the 2008 housing market crash.

Although it questions the appropriateness of Fannie Mae and Freddie Mac funding charitable activities while the two companies remain under government conservatorship, the Federal Housing Finance Agency’s official watchdog has concluded that the FHFA has the dissolution of the GSEs’ charity funds in hand. The recent report by the FHFA’s Office of Inspector General noted that at the time the conservatorships were established 3½ years ago, both companies had long-standing mechanisms in place to make “substantial contributions” to charitable organizations. In 2008, both GSEs’ charitable giving totaled $73 million.

Mortgages modified by Freddie Mac performed slightly better than Fannie Mae loans in the short term while the performance gap between the two GSEs widened further one year after modification, according to the Office of the Comptroller of the Currency.OCC’s latest Mortgage Metrics Report noted that Freddie loans had an 11.3 percent re-default rate three months after modification, while Fannie mods saw an 11.7 percent rate. At the six-month mark, Freddie stood at 18.1 percent compared to Fannie’s 18.8 percent.

Roughly one out of every 14 banks in the country suffered significant investment losses following the September 2008 government takeover of Fannie Mae and Freddie Mac, according to a new Federal Reserve discussion paper. The paper, When Good Investments Go Bad: The Constriction in Community Bank Lending After the 2008 GSE Takeover, details how financial institutions took a bath when the two companies were placed into conservatorship and dividend payments on common and preferred shares were suspended.

Mortgage banking operations reported stronger earnings in both loan production and servicing operations during the fourth quarter of 2011, according to a new Inside Mortgage Trends analysis. A group of nine institutions reported a total of $2.73 billion in earnings from mortgage production activity during the fourth quarter. That was up 20.8 percent from the third quarter. All but one company in the group, which includes most of the top lenders in the industry, reported positive results on loan production activities, which typically include secondary marketing results. The...(Includes one data chart)

Mortgage bankers reported stronger corporate income during the fourth quarter of 2011, but profitability was generally lower on a per-loan basis, according to the most recent performance report released by the Mortgage Bankers Association this week. Based on a survey of some 310 mortgage bankers, the study found average pretax income of $1.51 million per company in the fourth quarter, up 34.8 percent from the third quarter of last year. That brought the average pretax income for the year to $3.69 million, down 14.2 percent from 2010. Average profits per loan were generally down in the fourth quarter, even...